A slew of financial violations have been keeping the hearing panels of MFDA and IIROC busy. Although many are deliberate, some of these offences are the result of glaring ignorance that leads financial practitioners afoul of existing regulations.

Either way, recent disciplinary measures clearly show how seriously compliance issues are taken by the industry SROs. Then why do firms and financial advisors continue to find themselves in breach of regulatory by-laws, rules and policies?

We spoke to some legal experts to try and uncover those tripwires that activate the legal landmine of compliance rules.

Some obvious, others obscure, here's the list of lurking legal "gotchas" that most frequently compromise the integrity of firms and their members, and land them in the dock.

• Suitability of investments
  Unsuitable investment recommendations are by far the most common offences.
• Deficient KYC
  Ignoring the golden rule of the industry, 'know your client', results in the failure to determine and understand the investors' personal circumstances and objectives and recommending investments that are not aligned with the client's true risk tolerance.
• Breach of fiduciary duty
  Simply put, placing your own interests before the clients' by recommending investments that would increase commissions, rather than be in the best investment interests of the investor.
• Unsuitable investment objectives
  Recommending unsuitable investment objectives is often a lurking liability.
• Acting like a portfolio manager
  Some advisors put all of their clients into the same investment or strategy, irrespective of their different KYC profiles.
• Inappropriate use of leverage
  A very common offence that is a current focus of the MFDA's enforcement branch is the unsuitable recommendation of leverage.
• Outside business activities and off-book transactions
  This can range from negligent mistakes, such as sitting on the board of a company while trading in its stock on behalf of clients without recognition of blackout periods, to such intentional misconduct as selling clients products which are not authorized by the firm.
• Failing to cooperate with regulators and/or misleading regulators
• Failure to document

These days it's not enough for an advisor to do the right thing. He or she must be able to prove it.

This story is available in full at Advisor.ca.